No Easy Solution For The PIIGS

Think the PIIGS can be fixed by fiscal and monetary policy? Think again. Let’s look at Greece. Here we have a situation where only 36% of the population is employed, and only 22% in the private sector after government is taken out. That just doesn’t work without a non-existent level of  productivity. Here in the US, we’re looking at a 59% employment to population ratio, and pretty worried about that. The standard of living in Greece is supported by borrowed money and imports, domestic production is wholly inadequate.

To change this is generational, not a matter of a couple of years of austerity. Whole new industries that don’t exist, the infrastructure to support them, and the skills to manage and staff them have to be built. That takes investment. Where is that to come from? Who is willing to wait that long for returns? There is no answer within the current paradigm.

The other PIIGS are similar – some better, but not much. Without the constant inflow of money, these are third world economies and not very prosperous ones at that.

Either the prosperous countries will have to resign themselves to supporting their poor relations indefinitely, as for example the poorer provinces in Canada are subsidized by the others, or they will have to deal with the exodus of people from the failed states and the impoverishment of those that remain. In the meantime, loans to these countries are money down a rathole. Default is inevitable, better just call them transfer payments now and be honest about what’s going on.

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